Jim Cramer explains why high expectations can sink even strong stocks
CNBC’s Jim Cramer said Tuesday that investors often overlook an important market fact: Even when a company produces excellent results, it may only see its shares fall because expectations were too high, not because it did anything wrong.
Cramer said that many successful names were hit hard in the last session, which is a sign that the markets may have gotten ahead of them after a strong rise. He rejected Wall Street’s standard “profit-taking” label, saying it was inadequate to explain the disconnect between strong fundamentals and weak stock reactions.
Cramer pointed out. GE Vernova for example. The energy company, which plays a critical role in powering AI data centers, reported strong order growth and painted a bullish outlook. CEO Scott Strazik even hinted at a possible relationship with OpenAI, which sent other tech stocks soaring. However, GE Vernova shares, which are up almost 80% year-to-date, have fallen 50 points.
“These were not enough [GE Vernova] There was tremendous order growth. The stock was already expecting that and more,” Cramer said.
vertivAnother data infrastructure provider faced a similar fate. Despite delivering one of the strongest quarters of the year, with organic orders rising 60%, the stock reversed sharply after an initial bounce. Cramer said investors were already expecting a monster quarter and even a “great” result wasn’t enough.
Vertiv Chairman Dave Cote opened the company’s call with a joke: “I wonder what would happen if we didn’t blow the door off every single measurement?” Cramer said it’s a fair point: When the bar is set too high, reality has a hard time keeping up.
Backwards, Intuitive Surgery It rose 14% after surprising Wall Street with stronger-than-expected procedure growth. One important detail was that the company saw increased use of Da Vinci robotic systems outside working hours, indicating that productivity was increasing and demand was not. Cramer said that shares rose 14% this way because a re-acceleration was not expected.
Cramer also warned of continued pain in speculative stocks. Companies that have never made money issue new shares to stay afloat, and insiders cash out. However, he continues to be bullish on real economy names and points out the following: Capital One for example. The credit card company rebounded from a surprisingly positive quarter, showing a decline in credit issues despite broader concerns.
“I don’t think speculative stocks will return to where they were two weeks ago,” Cramer said. “That’s why I’m urging you to reduce the shares you own in companies that are losing fortunes.”
